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The Dark Side of Shadow Credit Intermediation

The Dark Side of Shadow Credit Intermediation. 23 November 2013. Adam B Ashcraft Senior Vice-President and Head of Credit Risk Management. Outline. Why does shadow credit intermediation exist? Why should we be concerned? What have we learned? What should we worry about now?.

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The Dark Side of Shadow Credit Intermediation

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  1. The Dark Side of Shadow Credit Intermediation 23 November 2013 Adam B Ashcraft Senior Vice-President and Head of Credit Risk Management

  2. Outline • Why does shadow credit intermediation exist? • Why should we be concerned? • What have we learned? • What should we worry about now?

  3. Why does shadow credit intermediation exist? Source: Ashcraft, Adrian, and Cetorelli (2013)

  4. Why should we be concerned? • Regulatory arbitrage • Neglected risks • Funding fragilities • Leverage cycles • Agency problems

  5. What went wrong?Asset-backed commercial paper

  6. What went wrong?Money market mutual funds

  7. What went wrong?Tri-party repo

  8. Securitization

  9. What went wrong?Government Sponsored Agencies FHLB Advances outstanding Non-FHLB vs FHLB Libor panel bid Source: Ashcraft, Bech, and Frame (2008)

  10. What went wrong?Credit Derivatives

  11. What to worry about now?Agency Mortgage REITs

  12. What to worry about now?Reinsurance This figure reports life and annuity reinsurance ceded by U.S. life insurers to affiliated and unaffiliated reinsurers. Reinsurance ceded is the sum of reserve credit taken and modified coinsurance reserve ceded. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2320921

  13. What to worry about now?Leveraged Lending

  14. What to worry about now?Chinese Shadow Banking

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